Question

The Texas Senate and Governor has hired you as an economic and policy advisor. Your clients would like to know if they should raise minimum wages, inclusive of the minimum wages of wait staff. What are your policy recommendations? The micro argument should involve theories learned from: Theory of the Firm, Costs of Production, Resources Costs, MRP, MC. BE SPECIFIC

Answer 1

Well! I wound recommend against it.

When the state raises minimum wages it would have a chain of implications on demand, price, production, employment and what not.

When minimum wages increase, it will increase the cost of production, it also increase MC and other costs including resources cost. Increased cost will surely increase the price. The law of demand comes into play and demand decreases. Firms who are not willing to compromise on their revenues increase price and reduce production. This reduced production will further create for unemployment because firms will lay off their workers.

So, to increase the welfare of a few workers the state will be compromising on the employment of many other people.

Therefore the rise in minimum will have a negative effect on employment. People willing to work less than the minimum wage will also find no job.

Hope you will like my answer.